Circular 4/2007 — Modifies Circular 115/2002

CIRCULAR 4/2007 Mexico, D.F., October 3, 2007

TO BROKERAGE FIRMS:

SUBJECT: MODIFICATIONS TO CIRCULAR 115/2002. PROCEDURE FOR MARKET MAKERS TO EXERCISE THE RIGHT TO PURCHASE GOVERNMENT SECURITIES AND CONCLUDE LOAN OPERATIONS ON SAID SECURITIES WITH THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT.

The Bank of Mexico, in its capacity as financial agent of the Federal Government, based on the provisions of Articles 3, fraction III, 7, fraction I, and 10 of the Bank of Mexico Law; Article 22 of the Law for Transparency and Ordering of Financial Services; Article 8, paragraphs third and fourth, 10, 12 in relation to Article 19, fractions I, II, VI, and IX, which provide the attributes of the General Directorate of Central Bank Operations to negotiate and formalize, among others, operations with securities; carry out necessary acts for the issuance, placement, purchase, sale, and redemption of government securities; operate mandates or commissions entrusted to the Bank of Mexico related to the aforementioned attributes, and to participate in the issuance of provisions; as well as Article 17, fraction I, which establishes the attribute of the Directorate of Central Bank Provisions to issue provisions, all of the Internal Regulations of the Bank of Mexico published in the Official Gazette of the Federation on September 30, 1994, whose last modification was published in said Gazette on April 26, 2007; in the Single Article, fraction IV of the Agreement on the Assignment of Administrative Units of the Bank of Mexico published in the Official Gazette of the Federation on October 15, 1998, whose last modification was published in said Gazette on April 26, 2007, and taking into consideration the provisions in the modifications to section 4.2.6 of Letter No. 305.-038/2006 issued by the Ministry of Finance and Public Credit, made through Letter No. 305.-088/2007 of the same Department, made known through our Circular 2/2007, as well as sections I and IV of Letter No. 305.-110/2007 of the mentioned Ministry, made known through our Circular 3/2007, through which the cited Department:

1. Determined the new method of calculation and collection of premiums that Market Makers must pay for securities loan operations they conclude, and

2. Instructed the Bank of Mexico, in its capacity as financial agent of the Federal Government, to carry out the acts necessary to implement the aforementioned, as well as to sign new securities loan contracts with Market Makers incorporating the corresponding modifications and to rescind, consequently, the contracts currently in force.

Has resolved, effective November 1 of the current year, to modify the "Definitions" section, the definition of Indeval; in section CB.7.1, the definitions of "Market Makers" and "Official Document"; and the second paragraph of section CB.7.3.2, as well as to add a second paragraph to section CB.7.3.1, all of Circular 115/2002, to remain as follows:

DEFINITIONS

"For brevity in this Circular, the following shall be understood as:

...

Indeval: S.D. Indeval, Institución para el Depósito de Valores, S.A. de C.V.

..."

CB.7.1. DEFINITIONS.

"For the purposes of section CB.7, in singular or plural, may be designated as:

...

MARKET MAKERS: credit institutions and brokerage firms that the Ministry of Finance and Public Credit determines may act as such under the terms of other applicable provisions.

OFFICIAL DOCUMENT: that issued by the Ministry of Finance and Public Credit, No. 305.-038/2006, dated February 27, 2006, as well as its modifications, which are attached in Annex 5.

..."

CB.7.3. LOAN OF SECURITIES BETWEEN MARKET MAKERS AND THE BANK OF MEXICO IN ITS CAPACITY AS FINANCIAL AGENT OF THE FEDERAL GOVERNMENT.

"CB.7.3.1 The securities loan operations referred to in the OFFICIAL DOCUMENT, shall be carried out through INDEVAL under the terms provided in its Internal Regulations, for which, MARKET MAKERS must carry out the necessary procedures before said Institution, in order to be able to operate the electronic procedure for the celebration of specialized securities loan operations, called VALPRE-E.

Upon maturity of the securities loan operations referred to in the preceding paragraph, MARKET MAKERS must pay in two stages the premium corresponding to each of said operations, the first of which relates to the fixed part, which shall be settled through INDEVAL in the manner and terms provided in its Operational Manual, and the second must be covered to the Bank of Mexico, in its capacity as financial agent of the Federal Government, on the next banking business day, through the corresponding charge in the accounts that the Bank of Mexico holds for them."

"CB.7.3.2 For MARKET MAKERS to be able to carry out the aforementioned securities loan operations, they must previously sign a contract with the Bank of Mexico which shall establish the characteristics of said operations, the rights and obligations of the parties, as well as the procedure to constitute, substitute, and cancel the corresponding guarantees.

For the purposes of the preceding paragraph, at least ten banking business days in advance of the date on which they intend to start the celebration of such operations, MARKET MAKERS must present to the Subdirectorate of National Operations Instrumentation within the hours between 9:00 and 18:00, a simple copy and a certified copy for comparison, of the public deed containing the power to exercise acts of ownership that they have granted to their representatives; a simple copy of an official identification of said persons, as well as a copy of the communication from INDEVAL stating that the brokerage firm in question is able to operate VALPRE-E. In this case, the corresponding MARKET MAKER must sign the corresponding contract at least five banking business days in advance of said date."

TRANSITIONAL PROVISION

Sole.- In order to comply with the provisions of section IV of Letter No. 305.-11/2007, so that MARKET MAKERS are able to sign the new contracts, they must, effective October 4 of the current year,

i) present to the Subdirectorate of National Operations Instrumentation within the hours between 9:00 and 18:00, a simple copy and a certified copy for comparison, of the public deed containing the power to exercise acts of ownership that they have granted to their representatives for the celebration of the corresponding contract, as well as a simple copy of an official identification of said persons, and

ii) sign the corresponding contracts. This is understood in the sense that, in accordance with the provisions of section IV of the aforementioned Letter No. 305.-110/2007, the Bank of Mexico will proceed to rescind the contracts it currently has with MARKET MAKERS on October 31, 2007.